What is National Pension System (NPS) | NPS returns in 2023

What is the National pension system (NPS)? how to invest in NPS? Check the NPS returns calculator. NPS tax benefits in 80CCD

This post was most recently updated on December 19th, 2022

National Pension System(NPS) got popular after Govt of India opened contributions to NPS for all Indian citizens in 2009. As the name suggests National Pension System(NPS) is an investment option that offers excellent opportunities for investment that is targeted for retirement.

National Pension System
National Pension System

NPS is an easily accessible, low-cost, tax-efficient, flexible, and portable retirement savings account. Under the NPS, the individual contributes to his retirement account. NPS is designed on a Defined contribution basis wherein the subscriber contributes to his own account.

Consider reading – 13 safe investments with high returns in India

Page Contents

What are the features National Pension System / NPS account?

The following are the most prominent features of the retirement account under NPS

  • Every individual subscriber is issued a Permanent Retirement Account Number (PRAN) card which has a 12-digit unique number.
  • Under the NPS account, two sub-accounts – Tier I & II are provided. A tier I account is mandatory and the subscriber has the option to opt for a Tier II account. The following are the features of these sub-accounts:

NPS Tier-I account : This is a permanent retirement account where under which the subscribers have to mandatorily contribute to NPS. Subscribers can withdraw up to 25% of their investment as per exit rules.

NPS Tier-II account : This is a voluntary account that doesn’t have any lock-in. Subscribers of this account can invest and withdraw at any point in time.

What are the key advantages of the National Pension System (NPS)?

The National Pension System (NPS) in India offers a number of advantages to subscribers:

  1. Flexibility: The NPS allows subscribers to choose their own investment options and allocation of contributions among different asset classes, such as government securities, corporate bonds, and equity. This allows subscribers to tailor their investments to their own financial goals and risk tolerance.
  2. Affordability: The NPS has a low minimum contribution requirement, making it accessible to a wide range of individuals.
  3. Tax Benefits: NPS offers tax benefits, with contributions eligible for tax deductions under Section 80C of the Income Tax Act up to a maximum of INR 1.5 lakhs per year.
  4. Professional management: The NPS is managed by eight Pension Fund Managers (PFMs), which are experienced investment firms that manage the investment portfolios on behalf of subscribers. This ensures that the investments are managed by professionals with expertise in the financial markets.
  5. Portability: The NPS account is portable, meaning that it can be transferred from one employer to another or from one PFM to another without any interruption in the service.
  6. Safety: The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures that the funds are managed in a safe and transparent manner.
  7. Flexibility at retirement: At the time of retirement, NPS subscribers have the option to either withdraw a portion of their balance or purchase an annuity with the balance to receive a regular income during retirement. This allows subscribers to tailor their retirement income to their own needs and preferences.

What are the key disadvantages of the National Pension System

The National Pension System (NPS) in India has some potential disadvantages that subscribers should consider before joining:

  1. Limited investment options: The NPS offers a limited number of investment options compared to other investment products, such as mutual funds or exchange-traded funds (ETFs). This may make it more difficult for subscribers to diversify their portfolios and manage risk.
  2. Low returns: The NPS has historically had lower returns compared to other investment products, such as mutual funds or equities. This may make it less attractive for investors seeking higher returns on their investments.
  3. Lack of liquidity: The NPS has restrictions on withdrawing funds before retirement, which may make it less liquid than other investment products. Subscribers are not allowed to make full withdrawals from their NPS account before reaching the age of 60, and partial withdrawals are only allowed for certain specified purposes, such as higher education, buying a house, or medical treatment.
  4. Complexity: The NPS can be complex and may require a lot of time and effort to understand and manage. Subscribers may need to review and adjust their investments regularly to ensure that they are aligned with their financial goals.
  5. Lack of flexibility at retirement: The NPS requires subscribers to purchase an annuity with a certain portion of their balance at the time of retirement, which may not be suitable for everyone. This may limit the flexibility of the retirement income options available to subscribers.

Can I have more than one NPS account?

No, multiple NPS accounts for a single individual are not allowed. There is no need of opening multiple NPS accounts as NPS accounts are portable via the PRAN.

What are the Eligibility criteria for an NPS account?

NPS accounts can only be opened by Indian citizens including the NRIs aged between 18 to 65 years.

How and where can I open an NPS account?

You can create your National Pension System(NPS) account in 2 ways

  1. Via POP – Points of Presence
  2. Via Online

NPS Via Points of Presence (POP)

NPS is distributed through authorized entities called Points of Presence (POP). Almost all the banks (both private and public sector) in India act as Point of Presence under NPS. To invest in NPS, you are required to open an NPS account through a POP bank, preferably where you have your NRI account.

You can send your NPS application form to your Bank for opening of the NPS account.

NPS Via Online

You can easily create an NPS account online in 10-20 mins. You can refer to How to fill NPS form online? for step by step guide on how to create an NPS account online.

How to check the status of my PRAN?

If you have applied for NPS then you can check the status of your PRAN(Permanent Retirement Account Number) by logging into https://cra-nsdl.com/CRA/ using the 17-digit receipt number provided by POP-SP or the acknowledgment number.

Once the PRAN is generated, an email alert, as well as an SMS alert, will be sent to the registered email ID and mobile number of the subscriber.

What are the documents required for opening an NPS account?

The following documents need to be submitted to your Bank (POP) for the opening of an NPS account:

  1. Completely filled in the subscriber registration form
  2. Copy of Passport
  3. Proof of Address, if the local address is different from the address in your passport.

Can I appoint nominees for the NPS Tier I and Tier II Account?

Yes, you need to appoint a nominee at the time of opening an NPS account in the prescribed section of the registration form. You can appoint up to three nominees in your NPS Tier I and NPS Tier II account.

If you have more than 1 nominee then you are required to specify the percentage of share, which should not be in decimals that you wish to allocate to each nominee. The share percentage across all nominees should collectively aggregate to 100%.

Can Nominee be added after the NPS account is created?

If you have not made the nomination to your NPS account at the time of registration, you can do the same after the allotment of PRAN. You will have to visit your PoP and place a Service Request to update nominations details. Or you can log in to your NPS account online to update nomination details.

What is the minimum contribution for NPS?

The minimum contribution for National Pension System(NPS) depends on the NPS tier.

How are the funds managed under NPS?

When you invest in National Pension System(NPS), you need to select a pension fund manager who will manage your NPS fund on your behalf of you. It’s like selecting a mutual fund manager for your retirement savings!

At present, there are eight Pension Fund Managers who manage the funds at the option of the subscriber.

They are as follows:

  • ICICI Prudential Pension Funds Management Company Limited
  • LIC Pension Fund Ltd
  • Kotak Mahindra Pension Fund Ltd
  • Reliance Capital Pension Fund Ltd
  • SBI Pension Fund Pvt Ltd
  • UTI Retirement Solutions Ltd
  • HDFC Pension Management Company
  • Pension fund to be incorporated by Birla Sun Life Insurance company limited

Each PFM manages a variety of pension funds, which are investment portfolios comprising different asset classes such as government securities, corporate bonds, and equity. Subscribers to the NPS can choose a PFM and a pension fund based on their investment goals and risk tolerance. It is important for NPS subscribers to carefully consider their investment options and to review their investments regularly to ensure that they are aligned with their financial goals.

You can check their performance here – Best NPS fund manager in 2020 for Tier-1

What are the different Fund Management Schemes available for NPS?

The National Pension System(NPS) offers two approaches to investing subscriber’s money:

Active choice – Here the individual would decide on the asset classes in which the contributed funds are to be invested and their respective proportions (Asset class E maximum of 50%, Asset Class C, and Asset Class G )

Auto choice – Life cycle Fund- This is the default option under NPS and wherein the management of investment of funds is done automatically based on the age profile of the subscriber.

As the age of the subscriber progresses, the exposure of the fund to Equity (E) and Corporate Debt (C) is reduced and enhanced in Government securities as a risk protection measure.

Choose the best fund by evaluating – Best NPS fund manager in 2020 for Tier-1

Is it possible to switch investment schemes and fund managers in NPS?

Yes, you can easily switch between different schemes like Asset class E, Asset Class C, and Asset Class G. Also you will be able to switch fund managers at any point in time for your NPS account.

You can easily change them by logging into your NPS account online or by visiting your POP branch.

What income tax reliefs are available for NPS?

Tax benefit for contributing to National Pension System(NPS):-


Eligible for tax deduction up to 10 % of gross income earned from Indian sources under Sec 80 CCD(1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE of IT Act, 1961.

Additional Tax benefit w.e.f 2015-16

From F.Y. 2015-16, subscribers are allowed extra tax deductions in addition to the deduction allowed under Sec. 80CCD(1) for additional contribution in his NPS account subject to a maximum of Rs. 50,000/- under sec. 80CCD 1(B) of IT Act, 1961.

NPS Withdrawal rules

What are the NPS withdrawal rules when the subscriber reaches 60 years?

When you attain 60 years of age then – At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for the purchase of an annuity providing for the monthly pension of the subscriber and the balance is paid as a lump sum payment to the subscriber.

In case, the accumulated pension wealth is equal to or less than a sum of two lakh rupees, the subscribers have the option to withdraw the entire accumulated pension wealth without purchasing any annuity.

What happens to my NPS account if I do not want to continue investing in it?

You can only prematurely withdraw your NPS contribution if you have contributed to NPS for 10 years! If you have contributed for 10 years then you will be mandatorily asked to take the annuity option for 80% of your investment and the rest 20% you can withdraw in a lump sum.

What happens to the NPS account in case of the subscriber’s death?

In the event of the death of the NPS subscriber, the entire accumulated amount of NPS is paid to the nominee/nominees of the subscriber. If there is no nominee then the amount is paid to the legal heirs.

Partial Withdrawal under NPS

Are partial withdrawals allowed under NPS?

Yes, Partial withdrawal is allowed under NPS.

You can only partially withdraw your NPS contribution if you have contributed to NPS for at least 10 years, you will be mandatorily asked to take the annuity option for 80% of your investment, and rest 20% you can withdraw in a lump sum.

What are NPS partial withdrawal rules?

You can do partial withdrawal of the National Pension System(NPS) only in the below scenarios:-
– For the purpose of higher education of his/her children,
– For the marriage of his/her children,
– For the purchase or construction of a residential house or flat
– For treatment of specified illnesses.

How many partial withdrawals are allowed in NPS?

You can do only 3 partial withdrawals for the NPS account in the entire tenure.

Annuity under NPS

What is an annuity in NPS?

Simply annuity means, your money will be invested in instruments that will give you monthly/quarterly/yearly fixed returns on your investments

What are the different types of annuities available for NPS?

The following are the generic annuities that are offered by Annuity Service Providers to the subscribers of the National Pension System(NPS)

  1. Pension (Annuity) payable for life at a uniform rate to the annuitant only.
  2. Pension (Annuity) payable for 5, 10, 15, or 20 years certain and thereafter as long as you are alive.
  3. Pension (Annuity) for life with return of purchase price on death of the annuitant (Policyholder).
  4. Pension (Annuity) payable for life increasing at a simple rate of 3% p.a.
  5. Pension (Annuity) for life with a provision of 50% of the annuity payable to the spouse during his/her lifetime on the death of the annuitant.
  6. Pension (Annuity) for life with a provision of 100% of the annuity payable to the spouse during his/her lifetime on the death of the annuitant.
  7. Pension (Annuity) for life with a provision of 100% of the annuity payable to the spouse during his/her lifetime on death of the annuitant and with the return of purchase price on death of the spouse. If the spouse predeceases the annuitant, payment of the annuity will cease after the death of the annuitant, and the purchase price is paid to the nominee.

For the latest update on NPS please visit https://npscra.nsdl.co.in/

FAQs on National Pension System

  1. Who is eligible to join the NPS in India?

    In India, the NPS is open to all citizens of India, including self-employed individuals, salaried employees, and the unorganized sector. However, the NPS is not available to non-resident Indians (NRIs).

  2. What are the tax benefits of the NPS in India?

    The NPS offers several tax benefits in India. Contributions to the NPS are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of INR 1.5 lakhs per year. In addition, contributions made by an employer are eligible for a tax deduction under Section 80CCD (2) up to INR 50,000 per year. The annuity income received from the NPS at the time of retirement is also tax-free up to a certain limit.

  3. What are the investment options available under the NPS in India?

    Under the NPS in India, you can choose to invest your contributions in a variety of asset classes, including government securities, corporate bonds, and equity. You can also choose to allocate your investments among these asset classes in a way that aligns with your risk tolerance and investment goals.

  4. Can I withdraw from my NPS account in India before retirement?

    Under the NPS in India, you can make partial withdrawals from your account for certain specified purposes, such as higher education, buying a house, or medical treatment. However, you are not allowed to make full withdrawals from your NPS account before reaching the age of 60. At the age of 60, you can choose to either withdraw a portion of your NPS balance or purchase an annuity with the balance to receive a regular income during retirement.

Newsletter Updates

Enter your email address below to subscribe to our newsletter

5 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!

Join our mailing list to receive latest updates and newsletters!

You have successfully subscribed to our blog!

There was an error while trying to send your request. Please try again.

We Invest Smart will use the information you provide on this form to be in touch with you and to provide updates and marketing.